Mr. V.P. Raja Chairman, Maharashtra Electricity Regulatory Commission at RPR 2012, 23-26 August, Goa, India

1. By Shri V. P. Raja, Chairman
Maharashtra Electricity Regulatory
Commission
The Regulators’ and Policy Makers’ Retreat 2012
23-26 August, Goa
24/8/2012

2. Background
 Electricity Act 2003 emphasizes the promotion of
competition in the sector through various
provisions, such as delicensed generation, open
access for T&D systems
 All these provisions leading to the development of
an open and competitive market in electricity
24/8/2012

3. Electricity Act 2003: Provisions for
Competitive Markets
 Electricity Act, 2003 opens up the power sector for
competition with the following provisions:
 Delicensed captive generation
 Encourages distributed generation
 Open Access to transmission and distribution systems
 Removal of exclusivity in Distribution License
 Trading is recognized as a distinct activity
 Mandatory Electricity Regulatory Commissions
 Establishing an Appellate Tribunal for Electricity
(APTEL) for dispute resolution
24/8/2012

4. Provisions for Competitive Markets
 Section 66 of the Act mandates the development of an
electricity market & market institutions
 Section 60 empowers the ERCs to issue such directions
as it considers appropriate to a licensee or a generating
company if the licensee or generating company enters
into an agreement or abuses its dominant positions or
enters into a combination which is likely to cause an
adverse effect on competition in the electricity industry
24/8/2012

5. Provisions for Competitive Markets
Allows multiple generators to come up and compete
Allows larger consumers to choose supplier
Prescribes competitive procurement of power on long
term
Aims to create a National Market via compulsory open
access
Policy framework assures
 reasonable and stable returns on investments
 Well defined Regulatory mechanisms
Makes governments responsible for providing power on
demand
24/8/2012

6. Why Competitive Bidding
 Competitive procurement of electricity reduces the
cost of power procurement for the discoms
 It prevents the formation of buyer/seller cartels
 End-consumer gets electricity at optimum price as 80-
85% of what consumers pay as tariff is power
procurement cost
24/8/2012

7. Why Competitive Bidding
Efficient power procurement becomes important to
ensure that:
 Consumers get affordable power
 Generation and transmission capacity owners and
developers get attractive return on their investments
 Discoms remain financially viable
 Competitive tariffs ensure that operational and financial
efficiencies are enhanced in a sector largely dominated by
state-owned companies used to working on the cost-plus
methodology
24/8/2012

8. CERC Study Findings
 The levelized prices discovered under the competitive
bidding process are lower compared to levelized prices
under cost plus methodology for 11 of the 14 projects
examined
 Sensitivity analysis also shows that levelized prices
discovered under competitive bidding process would
continue to be lower as compared to levelized prices
arrived at under cost-plus methodology even after
accounting for considerable variation in coal costs and coal
cost escalation rates
24/8/2012

9. CERC Study Findings
Levelized Tariff (` Calculated
S. /kWh) as per levelized Tariff
Project Size State Developer
No. Competitive under MOU Route
Bidding (` /kWh)
1 Talwandi Sabo 3 x 660 MW Punjab/Case 2 Sterlite 2.8643 3.0428
2 Rajpura 2 X 660 MW Punjab/Case 2 L&T 2.89 3.4228
3 Kamalanga 3 X 350 MW Haryana, Case 1 PTC/GMR 2.54, Bus bar 2.57, Bus bar@
4 Babandh 4 X 660MW Haryana, Case 1 LANCO 2.075, Bus bar 2.5159@
5 Jhajjar 2 X 660 MW Haryana, Case 2 CLP Power 2.996 3.2502
6 Mandva 2 X 660 MW Maharashtra, Case 1 LANCO Mahanadi 2.70 2.9537
7 Tiroda Ph.1 2 X 660 MW Maharashtra, Case 1 Adani Maharashtra 2.642 2.91782
8 Chitrangi, Ph 1 3 X 660 MW MP, Case 1 Reliance 2.45 2.5126
9 Mahan 2 X 600 MW MP, Case 1 Essar 2.45 2.2593
10 Nandgaonpeth 2 X 660MW Maharashtra, Case1 India Bulls 3.26 3.2397
11 Tiroda Ph. 2 2 X 660 MW Maharashtra, Case 1 Adani Maharashtra 3.28 2.8190
12 Mahanadi 3 X 600 MW Gujarat KSK Energy 2.345 2.4513**
13 Pragraj 3 X 660MW UP, Case 2 JP Associates 3.02 3.4047
14 Sangam 2 X 660 MW UP, Case 2 JP Associates 2.97 3.2418
24/8/2012

10. Competitive Bidding Guidelines:
Objectives
 Promote competitive procurement of electricity
 Facilitate transparency and fairness in procurement
processes:
 Transparency ensured by Guidelines & Standard Bid
Documents for tariff based bidding
 Enhance standardization and reduce ambiguity and time
for materialization of projects
 Standardization of Bid documents, Bid submission and
evaluation process, timeline for bidding process, tariff
structure
10
24/8/2012

11. Competitive Bidding Guidelines:
Objectives
 Provide flexibility to suppliers on internal operations while
ensuring certainty on availability of power and tariffs for
buyers
 Tariff to be quoted upfront for life of plant and Regulator to
adopt tariff arrived at through transparent bidding process as
specified by the Guidelines
 Developer has the flexibility to choose optimum unit
configuration
 Provides incentive to Developer to adopt innovative financial
modelling and tax planning to ensure competitive tariff &
return on investment
11
24/8/2012

12. Competitive Bidding Guidelines
24/8/2012

13. March 2009 Amendments
 The National Electricity Policy stipulates that 15% of the new
generating capacity can be sold outside the long term PPA
 Hydro project tariffs to be determined by the ERCs, provided it
has long term PPA for at least 60% of the total saleable design
energy of the project
 Sale of electricity outside long term PPA: Usually for less than 1
year
 Under Case 2 bidding, in order to ensure timely commencement
of supply of electricity and to convince the bidder of the
irrevocable intension of the procurer, project preparatory
activities must be completed on time by the procurer
24/8/2012

14. Case 1 & Case 2 Bidding
24/8/2012

15. Case 1 Bidding
24/8/2012

16. Case 2 Bidding
24/8/2012

17. UMPPs: Case 2 Bids
 Pit Head coal based project at Sasan to Reliance Energy at
evaluated levelised tariff of Rs 1.196/kWh – the lowest ever
levelised tariff
 Imported coal based project at Mundra to Tata Power at
evaluated levelised tariff of Rs 2.26/kWh
 Imported coal based project at Krishnapatnam to Reliance
Energy at evaluated levelised tariff of Rs 2.332/kWh
 Pit Head coal based project at Tilaiya to Reliance Energy at
evaluated levelised tariff for Rs. 1.77/kWh
24/8/2012

18. Case I Bids: Gujarat
Case- I Gujarat 3000 MW (-20%/+30%)
Capacity offered Levelised Tariff
S.No Bidders name (MW) Plant location (Rs./kWh)
1 KSK Energy Ventures_Wardha 1010 Chhattisgarh 2.34
2 Shapoorji Pallonji 800 Gujarat 2.80
3 Essar Power Ltd. 800 Gujarat 2.80
4 Pipavav Energy Ltd. 500 Gujarat 3.18
5 TRN Energy Pvt. Ltd. 150 Chhattisgarh 3.28
6 PTC India Ltd 300 Chhattisgarh 3.50
7 OPG Power Gujarat Pvt. Ltd. 300 Gujarat 3.66
8 MB Power (Madhya Pradesh) Ltd. 170 Madhya Pradesh 3.70
9 Avantha Power & Infrastructure Ltd. 200 Madhya Pradesh 3.94
10 Jindal India Thermal Power Ltd. 200 Orissa 4.36
Total offered capacity 4430 Weighted Average 3.02
Bid Capacity & Average Tariff 2610 Weighted Average 2.62
 Bids received for 4430 MW as against requirement of
3000 MW
 Levelised Tariff quoted by the bidders was in the range of
Rs 2.34/kWh to Rs 4.35/kWh at Gujarat STU interface
24/8/2012

19. Case I Bids: Karnataka
Case- I Karnatka 2000 MW (+-20%)
Capacity offered Levelised Tariff
S.No Bidders name (MW) Plant location (Rs./kWh)
1 Monet Power (PTC) 150 Orissa 3.76
2 Thermal Power Tech (PTC) 430 Andhra Pradesh 3.77
3 Meenakshi Energy (PTC) 200 Andhra Pradesh 3.80
4 JSW Bellary 600 Karnataka 3.81
5 East Coast Energy (PTC) 400 Andhra Pradesh 3.89
6 NCC Power Projects (PTC) 400 Andhra Pradesh 3.89
7 JITPL 200 4.46
8 JSW Maharashtra 600 Maharashtra 5.30
Total offered capacity 2980 Weighted Average 4.17
Bid Capacity & Average Tariff 2000 Weighted Average 3.82
 Bids received for 2980 MW as against requirement of
2000 MW
 Levelised tariff quoted by the bidders was in the range of
Rs 3.76/kWh to Rs 5.30/kWh at Karnataka STU interface
24/8/2012

20. Case I Bids: Maharashtra
Case- I Maharashtra 2000 MW (-20%/+30%)
Levelised
Capacity Tariff
S.No Bidders name offered (MW) Plant location (Rs./kWh)
1 GMR Emco 200 Maharashtra 2.88
2 India Bulls Power Ltd. (Amravati) 450 Maharashtra 3.27
3 India Bulls Power Ltd. (Amravati) 750 Maharashtra 3.27
4 Adani Power Maharashtra 1200 Maharashtra 3.28
5 Wardha Power Company Ltd. 675 Maharashtra 3.62
Total offered capacity 3275 Weighted Average 3.32
Bid Capacity & Average Tariff 2000 Weighted Average 3.23
 Bids received for 3275 MW as against requirement of
2000 MW
 Levelised tariff quoted by the bidders was in the range of
Rs 2.88/kWh to Rs 3.62/kWh at Maharashtra STU
interface
8/31/2012

21. Recent RFPs in the Market
8/31/2012

22. Section 62 & Section 63
 Section 62 provides for determination of tariff through the
MOU route
 Section 63 says that the ERC “shall adopt the tariff” if it is
determined by a transparent bidding process according to
guidelines
 Aptel ruled in 106 & 107 of 2009 that it is “purely” an ERC’s
decision whether it approves a negotiated tariff or directs a
licensee to procure power through compettitive bidding
24/8/2012

23. Competitive Bidding - Issues
 Association of Power Producers and Prayas in their recent
presentation to Forum of Regulators have apprised the
Forum about the emergent issues in competitive bidding:
 Co-existence of cost plus regime with competitive
bidding
 Rebidding based on unconvincing grounds
 Post bidding changes
 Issues with the time period of 25 years and the
uncertainty that it may bring to project developers,
especially with respect to fuel costs & fuel availability
8/31/2012

24. Competitive Bidding - Issues
 State owned discoms seem reluctant to issue RFPs for
power procurement
 Many states have state owned gencos whose power they have
to buy
 As these state owned gencos have not been efficient in
delivering contracted quantum of power, discoms have
tended to buy more in the short term market
 Data on power procured through bilateral trades Vs
exchanges shows significantly higher volumes and prices
for bilateral trades than for exchange traded power
8/31/2012

25. Competitive Bidding - Issues
Volume & Avg.Priceof Electricity Transacted through Traders
and Power Exchanges
40 6
35
5
30
4
Price(Rs/KWh)
25
Volume (BUs)
20 3
15
2
10
1
5
0 0
2009-10 2010-11 2011-12
volume-traders 26.72 27.7 35.84
volume-Power Exch. 7.19 15.52 15.54
Price-traders 5.26 4.79 4.18
Price-Power Exch. 4.96 3.47 3.57
24/8/2012

26. Competitive Bidding - Issues
 In the recent years, many state governments have started to
demand up to 50% of the power generated from a plant
situated in their state should be allocated to them –
example, Chhattisgarh, Orissa, in return for land, water, etc
 Tamil Nadu has demanded that the entire power from
phase 1 of the Kudankulam nuclear power plant (1000 MW)
should be allocated to it
24/8/2012

27. Competitive Bidding - Issues
 NTPC – India’s biggest generator is still selling its power
through the MOU route
 With next scheduled plants coming up in three power
hungry states – UP, Bihar and Tamil Nadu, the states are
likely to up the ante on the allocation issue
24/8/2012

28. Competitive Bidding - Issues
 The 5 year exception granted to NTPC and other PSUs by
MOP on competitive bidding 2006-2011 has been
withdrawn from FY 14 onwards, through a new circular
dated 5 Jan, 2011
 All appeals by the PSUs have been rejected by MOP
24/8/2012

29. Fuel Supply Issues
 2 main issues in both domestic and imported coal
 Uncertainty of pricing
 Uncertainty of supply
24/8/2012

30. Domestic Coal
 CIL’s inability to fulfill targets
 Project developers not getting coal on time or in contracted
quantities
 Project developers’ risk goes up as PLFs fall or forced use imported
coal, raising generation costs – domestic coal is 45-70% cheaper
than imported coal
 Refusal to sign FSA with generators
 Despite a Presidential directive, CIL is yet to sign FSAs with
generators
 CIL’s board is yet to approve fresh penalty clauses
 Proposed penalty levels:
24/8/2012

31. Domestic Coal
 CIL is also considering introducing a mechanism to pool
the prices of imported coal with domestic supplies
 CIL has sought technical advice from CEA on the feasibility
of a pooling mechanism as most plants can handle only up
to 15% imported coal mix
 Such a pricing system would work only if all domestic
consumers accept the resulting higher price
 CIL board has yet to decide on final draft of standard FSA
24/8/2012

32. Domestic Coal
 CIL’s independent directors have objected to severe
penalties for non-performance.
 NTPC has refused sign FSAs until the penalty clause is
made stiffer
24/8/2012

33. Imported Coal
 Imported coal
 Indonesian coal prices have gone up significantly since that
government’s decision to link export prices of coal with
international benchmarks
 The escalation of fuel cost will continue to be governed by CERC
regulations in force
Two UMPPs, Tata Power’s Mundra and Reliance Energy’s
Krishnapatnam projects are in trouble on account of the Indonesian
government’s decision to raise coal export prices
24/8/2012

34. Natural Gas
 KG D6 production is falling – is expected to be down to
65% of the target
 Affects power plants proposing to use KG D6 gas
 1st priority to fertilizer sector; then power
 RGPPL was to get gas allocation on par with the fertilizer sector (up
to 90% of the allocation) but the order has been held back after
other power producers protested. Current production in the range
of 1000 MW
 Reliance Energy’s Samalkot power plant based on KG D6 gas is
practically shelved
24/8/2012

35. Update on UMPPs
 Of the 4 awarded UMPPs, 2 were imported coal based –
Mundra (Tata Power) and Krishnapatnam (Reliance)
 Mundra - 2 units of 800 MW have been commissioned as
of date, well behind schedule
 Tata Power filed a case in CERC for revisiting the levellised
tariff of Rs 2.34/kWh.
 Subsequently, Tata Power moved the ATE and has now
moved the Supreme Court seeking tariff revision citing
force majeure
 Krishnapatnam – according to media reports, Reliance has
stopped land acquisition.
8/31/2012

36. Other PPAs in trouble - Adani-GUVNL
 According to the PPA signed by Adani Power and GUVNL
in 2007, the company was to supply GUVNL 1,000 MW for
25 years at a levelised tariff of Rs 2.35 a unit.
 Adani sought termination of the PPA in November 2008
claiming difficulties in obtaining coal (from Gujarat
Mineral Development Corporation Ltd). It also cited the
rise in the prices of imported coal from Indonesia.
 GUVNL moved GERC which refused to terminate the PPA
 Adani Power moved the ATE which also ruled in GUVNL’s
favour last year.
 Following this, Adani approached the Supreme Court and
the case has been admitted.
8/31/2012

37. Some Other PPAs in trouble – Tiroda
 Tiroda TPS in Maharashtra (Adani Power)
 To supply 1320 MW to MSEDCL @Rs.2.64 levellised tariff, fuel
sourced from Lohara coal block with a performance guarantee of Rs
99 crore. But was denied MOEF clearance since it was in buffer
zone of the Tadoba tiger sanctuary and was given tapering linkage
in lieu of Lohara.
 Adani claimed force majeure and asked for tariff revision/return of
performance guarantee but not revoking of the PPA
 Adani Power had already obtained additional coal linkage from
WCL and SCCL meeting entire capacity of 1980 MW, which
together with the tapering linkage is enough for the full 1980 MW
 Case is subjudice
8/31/2012

38. Recent Directives on Competitive
Bidding
 MOP has asked the MOC to direct all the entities being
allocated coal blocks by the government to sell power
through competitive bidding, failing which their allocation
could be cancelled.
 The Ministry has suggested a similar tariff-based bidding
condition for those already allotted coal blocks for power
sector IPPs
 MOC has directed that projects that don not have a long
term PPA in place will not get a coal linkage
8/31/2012

39. Conclusion
Competitive bidding is one of the ways to introduce
transparency and accountability in the sector
Present glitches are part of the learning curve
Competition will bring in optimisation of resources,
bring in operational and other efficiencies and
ultimately, lead to greater customer satisfaction
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40. 24/8/2012

41. THANK YOU
24/8/2012